"I would emphasise that when Barack Obama proposes raising taxes on the rich, he's proposing specifically to raise the top federal income-tax rate. That's why the burden of the federal income tax, and not the burden of all taxes everywhere, is the relevant measure."

And I would emphasize that when Barack Obama proposes raising taxes on the rich, he's proposing to make adjustments to the tax system as a whole. That's why the burden of the tax system as a whole, and not the burden of one part of it, is the relevant measure.

Alternatively, taking your argument to the extreme, you could say the following: When Barack Obama proposes raising taxes on the rich, he's proposing to make adjustments to the capital gains tax. That's why the burden of capital gains tax, and not the burden of income tax as a whole, is the relevant measure.

The fact that you chose (A) and not (B) or (C) suggests there is some other hidden factor at play.

I certainly don't buy the flat is fairer argument. I think it ignores the fact that poorer people have to spend more as a percent on necessities. The other, more important thing it ignores is that there are all sorts of payments that the rich are not taxed on, the biggest being inheritance. What we have in america right now is a system where the most important determinant of whether you become a wealthy adult is whether or not you were born a wealthy child. That would seem to put the lie to the current tax regime being fair. A fair tax system would help to insure a level playing field, where merit is rewarded. That would necessarily require larger transfers to help with education and health care to those that can not afford it. Right now, the poor are denied access to top notch education by the tax system. They are denied access to health care unless they are very very poor indeed, also because of the tax system. Their jobs are in peril because of, among other things, the tax incentives to ship their jobs overseas. The idea that a flat tax remedies these elements of unfairness is laughable. A fair system would insure equal opportunities for success. Right now we have assured outcomes, you are born rich, you die rich. It is not 100% but it is closer to 100% than it is to 0%, therein lies the unfairness.

Here's the thing: to me, if a policy can be justified on other grounds that I find convincing, I don't care how it's sold to everyone else. This is why I don't pay attention to campaign rhetoric. The best and strongest justifications for most good policy would cause the general electorate to turn against you, so politicians routinely invent plausible but flawed reasons to satisfy the ignorant.
So instead of focusing on the argument being made - which I contend is intentionally simplistic - you should focus on the merits of the policy at hand. You like flat taxes, W.W., so let's talk about flat taxes versus progressive taxation, not go on and on talking about shallow populist speechifying.

Aaah, very subtle, indeed. Well, you see, the unicorn is too obvious, but bloggers don't have a firm enough grasp on reality to see that the deer is where the meat of the argument is. So they go after the forest to demonstrate that they are realists; and are not fooled by the unicorn...

"I would emphasise that when Barack Obama proposes raising taxes on the rich, he's proposing specifically to raise the top federal income-tax rate. That's why the burden of the federal income tax, and not the burden of all taxes everywhere, is the relevant measure."

What a load. A tax dollar is a tax dollar. It doesn't really matter if it's tossed into the bucket labelled "payroll tax" or "federal income tax". What matters is the total amount of tax dollars you pay, compared to the income you make. The government can launder it through the appropriate channels (maybe some pays for pensions, allowing the rest to pay for highways), but the aggregate amounts are what matters.

Sorry, posted before I finished. The other point Will ignores is that the returns to infrastructure investment go disproportionately to the rich. The existence of the internet makes a lot more difference to Mark Zuckerberg's income than it does to a farmer's, or a coal miner's. The existence of the interstate highways makes a lot more difference to Jeff Bezos than a teacher. Property rights (and the judicial and law enforcement systems required to uphold them) matter a lot more to those with lots of property than those living under a bridge.

"The existence of the internet makes a lot more difference to Mark Zuckerberg's income than it does to a farmer's, or a coal miner's. The existence of the interstate highways makes a lot more difference to Jeff Bezos than a teacher."

This is another specious argument. Just because Jeff Bezos makes more money by utilizing the road, he needs to pay more? The same roads exist for others to make money off too.

Kaveh, your reasoning is crude and simplistic and your argument is irrelevant to the point the author is making.

The author is claiming that Obama himself is talking about federal income tax and not comprehensive income. In the article, the author takes Obama's argument under the assumptions and premise that Obama has set and then attempts to show how Obama's argument is flawed. Again, under the assumptions that Obama set. I don't know what you are blabbering about.

Also, it does matter where the dollar came from. The article makes a good point about the reasoning behind why the payroll tax is treated separately. The argument for SS is that the government will take care of your money and return it back to you as retirement income. If a tax dollar is a tax dollar, then plausibly my SS payments could go towards federal funding for the California Amtrak railway or aid to Pakistan. Someday if the US government goes bankrupt, what becomes of that tax dollar? Why should the population get on board with this scheme? Keeping it a separate pot vastly improves its viability. And yes, the government has sneakily been "borrowing" from this pot but they are required to pay interest on their loan. Again, proof that a tax dollar is not a tax dollar.

Lastly, as for total tax dollars I pay - is anyone calculating how much I paid in special taxes when I rented a car from Avis or airport taxes when I fly? A business man spends tons more on this than does a homeless guy; who's keeping tab?

"I happen to agree with Steve Forbes that a flat tax best reflects our intuitions about proportionality and fairness, so I'm tickled to see that our system is so fair!"

That's a bit aloof, especially since if we buy your analysis, then transitioning to a Forbesian (Forbesesque? Forbes-like?) federal flat income tax implies transitioning to a more regressive tax scheme.

And why are we bothering with income tax anyways? The truly rich people, which in this case includes corporations, are wealthy enough to employ accounts who justify their ROI by crafting effective tax shelters. And if you have to ask how rich you must be in order to avoid paying taxes, you can't afford it.

If you think a flat tax is fair, does it then follow that you believe that money does not have diminishing marginal utility?

I can only believe that taking 20% of a poor person's income is just as fair as 20% of a rich person's income if 20% causes genuine hardship to a rich person. And frankly, I don't believe that's the case.

So I'm faced with a bit of a conundrum. I don't understand your position; it seems nonsensical from where I sit.

"If you think a flat tax is fair, does it then follow that you believe that money does not have diminishing marginal utility?"
No. They're completely compatible concepts."I can only believe that taking 20% of a poor person's income is just as fair as 20% of a rich person's income if 20% causes genuine hardship to a rich person. And frankly, I don't believe that's the case."
What you're believing is not diminishing marginal utility but the idea that life's harder when you have less total money. You can't equalize that hardship short of a 100% tax which would equal the total money. Marginal utility is completely unrelated. $100M for some with $1B can have the same utility as $10M for someone with $100M. But it will always suck more to be the guy with $100M. IOW, the guy with $1B taxed at 10% will always be better off than the guy with $100M taxed at 0%. But nobody believes that would be equal sacrifice.

I believe both in diminishing marginal utility of money, and that life is harder when you have less income. I don't think either position is remotely controversial, so your comment confuses me.

What I think you're trying to get at is "equal sacrifice" and you seem to think that implies equalizing income; I think that's what you're getting at when you say "100% tax" (I think you mean a tax that takes away the entire difference, for whatever contrast we're making - but your writing here isn't clear to me).

But equalizing income isn't what I'm getting at at all. For a guy at the bottom of the income distribution, a 10% tax makes a significant difference to his day to day life, particularly because he's generally not building wealth - he's living hand to mouth, from paycheck to paycheck. A 10% tax on an otherwise untaxed person at the top of the income distribution generally just means a decrease in the rate of wealth accumulation. Those people are long past looking at price tags.

There's a lot more to fairness. Salary is loosely determined by the laws of supply and demand, but those laws have no necessary, intrinsic fairness either. It amuses me to hear about poor bankers who have to work oh so many hours for their gilded wage, as if the time they spend somehow justifies the wages, when the same time spent by e.g. rubbish heap scavengers faces much lower returns. Whether you pick up the skills that are in high demand at various other stages of your career depend an awful lot on luck; luck of where you're born, what connections your parents have, whether you find the right mentors at a young age, etc. To get properly into fairness I think we'd have to get into Rawlsian justice and related approaches.

Everyone believes in diminishing marginal utility and that life is harder with less income. But the two have nothing to do with each others as far as taxation is concerned! That's my point.

A 0% tax for someone at the bottom is more burdensome than a 10% tax on a millionaire when you're comparing how much money they're left with. But that has absolutely nothing to do with diminishing marginal utility which is concerned ONLY with the marginal dollar and not with how much is left.

Your last paragraph is the fundamental difference between you and I on taxation. I want to help the poor and don't care how much bankers make. You want to reduce income inequality even if it'll hurt the poor in the long run.

Read my last paragraph again. I never said I wanted to "reduce income inequality even if it will hurt the poor in the long run" - that's your complete fabrication, and frankly casts doubt on how genuine you are. In that paragraph, I was making a point about the intrinsic unfairness of salaries as determined by supply and demand. I did not state that I wanted to equalize incomes; that's something you seem to keep coming back to, but you're pulling it out of thin air.

What I *am* after is a better understanding of fairness in the context of wealth / income / opportunity distribution. I'm not so hubristic to think I can state some solution off-hand; but I'm not ashamed to criticize the simplistic assumptions others make.

Re your marginal sums: I don't see a meaningful distinction between 90+11% analyzed in a marginal fashion, vs 100-10%. The mathematics are identical. Similarly, you are artificially limiting yourself to a 0% lower bound on tax; you should be considering negative income tax too, and the sums will change so it may more easily be seen in your seemingly preferred format for marginal analysis.

"I would emphasise that when Barack Obama proposes raising taxes on the rich, he's proposing specifically to raise the top federal income-tax rate. That's why the burden of the federal income tax, and not the burden of all taxes everywhere, is the relevant measure."

Err.. no. Obama has proposed raising taxes on the rich in other ways too, many other ways - increasing estate taxes and capital gains taxes, to name a few. Your insistence that this is an issue of federal income tax only lacks justification.

Furthermore, your proposition is undercut by Obama's reasoning which you present in the very same paragraph. The point is that society in general not paying enough taxes (not just federal income taxes) to support the public infrastructure on which the society in general rely upon. Since the rich and the businesses they draw income from disproportionately benefit from that public infrastructure (see distribution of wage increases in the past couple decades, corporate profit rates), they are the fairest group to pay an additional amount. As your colleague notes, the total American tax system is virtually flat, and very mildly progressive. Income taxes are the simplest, most direct, and least invasive way of increasing total progressivity in the tax code.

Both are also categorized differently and taxed at different rates. Payroll taxes are also given as a percentage of income - they are essentially just flat-rate income taxes with a ceiling and an expressed use, though it gets used for other purposes regularly. You're right, but it's all pointless semantics.

Obama has proposed raising federal income taxes on the rich, along with other taxes (Medicare payroll tax, for another example) to raise the overall, effective tax rate on the rich, for the reasons I've described.

How do you know the rich use those resouces disproportionally to the rest of population? If a rich has private transport, he isn't using the public one. If a rich goes to private school, he isn't using the public one. If riches can live of their huge savings, they have no need for the social security or Medicare... Or are you exclusively referring about companies using roads and ports to transport merchandise? Because these are businesses not rich individual people? What are you talking about?

I never said anything about use, I talked about benefit. We have created a system in which the majority of economic gains are going to the richest individuals and corporations. Part of that system is public infrastructure, including roads, bridges, schools, and publicly funded R&D. These are investments that have been shown (repeatedly) to pay economic dividends and since the rich are largely the only ones reaping the rewards, they're the ones benefiting from that investment.

As with WW, be careful when inferring meaning in others' words. I said public infrastructure supported the rich, not that they used it disproportionately themselves. That is an important distinction.

*sigh* Again, consumption (or direct use, to put it more broadly) is not the sole component of "support". Public investments are made which increase GDP by facilitating economic activity. GDP gains have been absorbed almost entirely by the wealthy, as incomes in the middle and lower class have stagnated. The wealthy have benefited from these investments in indirect ways, I would argue mainly through productivity gains in their workers.

I will repeat, one more time because it didn't seem to be understood the first two times: benefits from a policy, program, or system are realized in more ways than just direct consumption. Please address the points that were actually made before dismissing an argument as "bad".

I stii don't get your point. "since the rich are the ones reaping the rewards...."
What is that supposed to mean? That they should be punished for using them? It's not their fault that others subutilize those resources... Is not like the resources are there with a label "for riches use only".
The whole meme returns to the basic and common sense principle that for some reason is always left out in these discussions: people are individuals, with individual drives, abilities and motivations. The same way a "rich" is using those resources, another beginner who isnt rich is using it to prosper, while other uses it just for fun.

All these "redistributionist" arguments are just straw men to avoid addressing the core issue of it all, which is simply class envy. that's all there is to it.

That is the Obama argument of GDP growth coming from government and it's bad. When you begin to look at specific examples, you realize how ridiculous that is. If I use a road to go have dinner with Donald Trump and you use the road to transport medicine, you should pay more for the road because you're profiting more?

Now, it can be said that the wealthy indirectly consume more. The rich buy and sell more stuff which uses more roads. There's still no reason to believe they use more than they pay for. It may surprise you to learn that the rich already pay more in taxes.

Who think that way? As long as I have existed I've known that taxes are our contribution to government for it to perform the actions that can't be perform by individuals: defense, infrastructure, borders protection, law enforcement, and so on...

Look at what Economists are telling China about providing better pensions and health care to INCREASE the consumption in the economy. While it's true that it's hard to pinpoint the benefit for businesses of paying social security or medicare taxes for workings, macroeconomically, it frees up potential savings for current consumption as workers will save less knowing that they can access medicare or medicaid in their old age or in the event of disability. They also would likely increase their demands for high wages knowing that they were fully responsible for funding their own retirement. Therefore, the argument does not entirely fail - these social programs do have an economic impact on corporations.

Beautifully said. What's going on is a debate over what is "fair", to take money from people who earned it and give it to people who didn't while deadweight loss decreases overall wealth or allow people to keep a larger portion of the proceed's of their labour

The free market outcome is guaranteed to produce allocative efficiency, but it does not follow that the free market outcome is a moral good. Blind railing against all deadweight loss smacks of Rothbardian anarcho-capitalism, which is emphatically not something we should aspire to.

I didn't say we should never have taxes on behalf of deadweightloss. My point is that deadweightloss is something that should be avoided if possible and that government should generally be on the smaller end, not non-existant

I didn't mean to imply that. I merely wanted to point out that we can and do routinely subordinate efficiency concerns for many reasons because the free market outcome is not necessarily the moral outcome, unlike what you seem to imply with your characterization of W.W.'s post. Arguing that it is the moral outcome puts you on some pretty shaky ground.

You sound like a simpleton who loves to generalize and think pretty much most rich people don't earn their wealth because they either inherit their wealth or (from other posts of yours) just get lucky and all falls into their lap.

And the wealthy pay no tax whatsoever because somehow these are these unspecified loopholes (as liberals love to bring up) which enables them to pay next to nothing in taxes.

The top 0.1% (super rich) earned 7.8% of all the adjusted gross income and paid 17.1% of the federal income taxes. So after these reviled loopholes and accountants, the 0.1% are paying almost a fifth of the total federal income tax intake. But hey, its much easier to post one-liner generalizations when many of the visitors here are MSNBC viewing lemmings.

On the other hand, estates can be spent on giving one's heirs as good a set of skills as possible. But not giving them an inheritance which will reduce their incentives to use those skills (their personal human capital) as efficiently as possible. At least, I see no particular economic benefits to more Paris Hiltons -- but perhaps that's just me.

How much more? And how much more would he have spent on lavish parties and vacations if he couldn't pass his wealth along? And now generalize to the entire population. There's no economist who denies that the estate tax distorts incentives. There's legitimate debate only over the extent. If you want to tax inheritances more, just tax them more from the beginning, e.g., a 50% tax on income over $10M. It's nonsensical to tax thrift more than waste.

I agree entirely that it is nonsensical to tax thrift more than waste. Not least because I'm one of the savers who gets the short end of that stick.**

But I would note that the same people who get worked up about estate taxes are those who get worked up about raising taxes on high incomes. So as a practical matter, it's a question of which kind of tax seems more likely to be possible to do.

** Totally unrelated to the subject at hand: Anyone with spare time might be amused to look into the origin of that particular phrase/analogy.

Wil, do you ever think, even think of writing something the opposite of what you always, always write? That is the test of an intellectual. You never do that. You try so hard to be an intellectual but you are strait-jacketed by your adherence to a specific set of rules. You'll never get there unless you can argue against yourself. I don't see that in you. Never have. I hope one day I will, but I doubt it. The most I can see happening is an improvement in your "straw man" arguments. You'll never be as good as David Brooks at creating fake arguments to knock down. You are too strident for that, too much the ideologue. That is the interest: you strive for intellectual quality with vigor.

Not entirely unfairly. You could just as easily sum up the W.W. portfolio as "they're over-reacting." I wouldn't insult W.W.'s writing, intellect or abilities all of which I admire. But for someone so gifted and putatively independent of mind, he does stick pretty close to the formula Jomiku describes.